Friday, 29 May 2009

Let's All Do The 'Flip'?

It is great to see free advice for anyone who has a second home in Britain being given on the BBC website - this time by an accountant named Sharon Bedford.

She points out that the 'Time to sell' rule allows the perfect foil for flipping which has been the domain of MPs like Hazel Blears and Geoff Hoon. Hazel Blears famously announced whilst in leathers outside her main residence, or was it her second home, or third - well one of her homes - that she had behaved within the rules of the House Commons and the 'Rules of the Inland Revenue'. Within a week she was seen grinning like and over eager actress in a Daz advert holding up a stainless garment that was a cheque for the Capital Gains Tax (CGT) on the sale of her second home - which he had told the taxman was her main residence.

Now, if Sharon Bedford's advice in her article is right, then our little Hazel had a clear conscience and need not have paid back the tax. But if she is wrong, then the little devil was quick to bury the evidence - sadly she did it on TV and in front of millions. It was like a jewel thief replacing their stolen goods with their mask off on 'Richard and Judy'.

'Flip Again, Like You Did Last Week'

So goes the new song in the corridors of Westminster. According to Tax 'Mitigation' Expert, Ms. Bedford, if you have a second home anywhere, all that you have to do is to send a letter to the taxman, say, the week before you want to sell your dry rot ridden chalet in Southampton and declare it as your main residence, sell it the next week and so pocket the gain in value tax free, then a week later write to tell the taxman to change it back to the place where you actually live with your family.

It is that simple and the taxman is that stupid. You see, under a rule called 'Time to Sell', the moment you change your status of your second home to the main residence, the taxman assumes you have lived there for the past 3 years which is counted as time to sell. Even if you have been renting the place out. According to Ms. Bedford.

In the case of Ms. Blears, when she bought one of her residences in London, she has a two year period to declare whether that place will be her main residence. By deciding for the taxman that their main home is still their residence, i.e. the one in Salford where she can be seen grinning in her leathers like a 'Hell's Granny', she can sell the new bijou flat in London any time in the next 2 years and pocket the profit as long as the day before the sale she writes to the taxman and tells him it has suddenly become her second home - the 3 year count back applies to save any CGT.

Meanwhile, under parliamentary rules, little Hazel sniggers profusely and does precisely the opposite. The moment she buys the flat she can either declare it her second home and claim full second home allowance in whatever way she can and then 'flip' whenever she wishes to pay for things in Salford.

Jaqui Smith famously declared a bedroom in her sister's house as a main residence in London so that she could claim for everything, including her husband's porn, in the real main home but in Parliament's eyes her second home. Tony McNulty, who is now paying back £3,000, was even more cynical. He declared his parent's house in Greater London as his main residence and his flat in London as his second home. Incredibly, he thought that was legal and within the rules - how wrong he was.

In The Real World

In reality, second homes under real Tax Law is more complex. In reality you have to 'prove' that you have lived at an address which is designated at any time, your main home. So, if, as Sharon Bedford suggests, that you flip your residences at the last second and the 3 year count back assumes you have lived there but you only bought the flat two years earlier but have rented it out - there are two conflicting things going on. This is the only case I can think of when a person can 'legitimately' get away with this.

But there are issues for the rest of us. Firstly, you need to declare to the taxman any earnings from rent over and above the mortgage value in any second home. Secondly, for mortgage purposes, the property is assumed as 'buy to let' which signals to the taxman your intent. Thirdly, by flipping a buy to let property, I do not think the count back rule applies but it is worth checking. What it does mean, is that you have to have extensive knowledge of the system in order to avoid it - which is where people like Sharon Bedford come in.

For Hazel Blears, Geoff Hoon and all the gang who 'flipped' to make money, you have to have a clear view of the two sets of rules in play in order to profit. There is no accidental way you can make money. So when dear Hazel paid back the cheque, she publicly declared she had defrauded the taxman. The others hide behind the shroud of mystery that is the system they exploited for gain.

I still believe, despite what Sharon Bedford suggests, that the taxman is not stupid. One thing I do know, is that the taxman does like to made to look stupid in the real world. It is a travesty that all MP expenses have not been scrutinised but I suppose it's a question of where do you start.

Flipping is where I would start. In all cases, it is a deliberate and well advised method of avoiding paying large sums of tax. It is a flagrant misuse of public money for personal profit. It is a crime even if that is a moral crime. Saying it is either the system or the rules are to blame is no excuse, that just shows moral bankruptcy and such a person has no place in positions of power or trust.

Gordon Brown says Hazel Blears has done a good job. I think she is rotten to the core and I suggest she will get voted out at the next election. If Brown had half an ounce of intelligence, he would be reading the growing anger in the public as a clear indication that if he leaves people like Blears, Hoon, McNulty, and Smith in place at the next election, those will be seats he will lose.

Denial can be a powerful tool in politics - it can also be your downfall.

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